India exits recession but rapid growth is still a long way off

India exits recession but rapid growth is still a long way off

India’s economy is out of recession but still a long way from returning to rates of growth seen before the pandemic.

Asia’s third biggest economy recorded a rise in gross domestic product of 0.4% in the final three months of 2020, compared with the same period a year earlier, according to official statistics published on Friday.

Last year, the country plunged into recession for the first time in nearly a quarter of a century, with economists warning that it would struggle to recover from the slump. Official data showed that GDP fell 7.3% from last July to September, following a record drop of more than 24% the previous quarter.

For 2020 as a whole, the Indian economy contracted by 6.9%.

In a research note on Friday, Shilan Shah, senior economist at Capital Economics, estimated that GDP grew 9.2% in the last quarter of 2020 compared with the previous quarter, “enough to lift it back to the pre-pandemic peak.”

India may also be making a comeback on other fronts. The country is experiencing a drop in coronavirus cases, with the number of daily reported new infections down by almost 90% in mid-February from its peak last September.

And growth appears to be “off to a strong start” in early 2021, according to Nomura economists Sonal Varma and Aurodeep Nandi.

They wrote in a note on Thursday that their “India Normalization Index,” which tracks consumption, investment, industrial production and services, “suggests that the economy continued to rapidly return to normal in January.”

Capital Economics’ Shah said there were still reasons to be cautious, despite the better outlook for this year thanks to significant fiscal support.

“While new Covid-19 cases remain low, the recent flare up in Maharashtra highlights the risk of targeted lockdowns, at least in the near term,” Shah wrote. Bad loans could also further weaken India’s ailing banking sector and “prevent the economy from returning to its pre-virus trend any time soon.”

Once one of the world’s hottest economies, India was already struggling before the pandemic hit. Growth rates had slumped from about 9% in 2016 to around half that at the end of 2019.

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